Senate File 2490 - Introduced SENATE FILE 2490 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SF 2449) (SUCCESSOR TO SF 546) (SUCCESSOR TO SF 268) A BILL FOR An Act relating to oil and gas production, including filing 1 requirements, the authority of the department of natural 2 resources, confidential information, pooling orders, 3 negotiation of surface damage, imposition and distribution 4 of a tax, and jurisdiction. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 2000SW (3) 91 sb/js

S.F. 2490 Section 1. Section 8.57A, Code 2026, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 3A. A severance tax account is created in 3 the environment first fund. Moneys in the account in a fiscal 4 year shall be used as appropriated by the general assembly for 5 purposes of supporting water quality projects. 6 Sec. 2. Section 22.7, Code 2026, is amended by adding the 7 following new subsection: 8 NEW SUBSECTION . 78. Records received, collected, or 9 created in the administration of severance tax for oil and gas 10 production pursuant to section 458A.29, subsection 3. 11 Sec. 3. Section 458A.2, Code 2026, is amended by adding the 12 following new subsections: 13 NEW SUBSECTION . 01. “Casing” means the practice of 14 providing structural integrity, stability for unstable geologic 15 formations, and formation isolation, allowing for pressure 16 control via blowout preventer equipment, and allowing for 17 flowback if applicable. 18 NEW SUBSECTION . 2A. “Correlative rights” means the 19 opportunity afforded to the owner of each property in a pool 20 to produce, so far as it is reasonably practicable to do so 21 without waste, a just and equitable share of the oil or gas, or 22 both, in the pool. 23 NEW SUBSECTION . 5A. “Exploratory well” means a well drilled 24 beyond the known producing limits of a pool. 25 NEW SUBSECTION . 20A. “Well log” means a record of geologic 26 formations penetrated by the borehole with respect to both time 27 and depth during drilling operations. 28 Sec. 4. Section 458A.4, subsection 1, Code 2026, is amended 29 by adding the following new paragraph: 30 NEW PARAGRAPH . 0b. Every person acting as a principal or 31 agent for another or independently engaged in the production, 32 storage, transportation, except by railroad, refining, 33 reclaiming, treating, marketing, or processing of oil or gas, 34 or engaged in the exploration for or production of metallic 35 -1- LSB 2000SW (3) 91 sb/js 1/ 24

S.F. 2490 minerals to file the following with the department on or before 1 April 1 of each year: 2 (1) The name under which the business is being operated. 3 (2) The name and contact information of the person, 4 business, or businesses engaged in the activity. 5 (3) The plan of organization. 6 (4) For a corporation, the following filings apply: 7 (a) The law under which the corporation is chartered. 8 (b) The names and contact information for any person acting 9 as a trustee. 10 (c) The names of the manager, agent, or executive. 11 (d) The names and contact information of all officers. 12 (5) The names and contact information of all owners if the 13 business is conducted under an assumed name. 14 Sec. 5. Section 458A.4, subsection 1, paragraph b, Code 15 2026, is amended to read as follows: 16 b. The making and filing of all mechanical well logs and 17 the filing of directional surveys if taken, and the filing of 18 reports on well location, drilling , and production, and the 19 filing free of charge of samples and core chips and of complete 20 cores less tested sections when requested in the department 21 within six months after the completion or abandonment of the 22 well , unless otherwise extended pursuant to section 458A.6A ; 23 Sec. 6. Section 458A.4, Code 2026, is amended by adding the 24 following new subsection: 25 NEW SUBSECTION . 4A. To allow for variances to any of the 26 department’s rules, regulations, or orders. A variance shall 27 be granted in writing by the director without a hearing upon 28 written request of an owner or applicant. The owner or the 29 applicant requesting the variance shall demonstrate that it has 30 made a good faith effort to comply or is unable to comply with 31 the specific requirements contained in the rules, regulations, 32 or orders from which it seeks a variance, and that the 33 requested variance will not violate the basic intent of this 34 chapter. Upon proper submission to the director, the director 35 -2- LSB 2000SW (3) 91 sb/js 2/ 24

S.F. 2490 shall approve or deny the variance request within fourteen days 1 of receipt. The director shall report any variance granted at 2 the subsequent hearing or otherwise make public any variance 3 granted. 4 Sec. 7. NEW SECTION . 458A.6A Confidential information. 5 If an owner seeks to submit information that is listed 6 as confidential, the owner will confer with the department 7 prior to submitting the information to verify it qualifies 8 as confidential pursuant to the department’s rules or 9 otherwise under law. If the information is determined to 10 be confidential, the owner will submit hard copies of the 11 information in nonredacted form but labeled confidential in a 12 conspicuous location on the document. Confidential information 13 shall be maintained as confidential and held without public 14 access for a period of five years, unless otherwise extended 15 by the director for good cause. Confidential information may 16 include the following: 17 1. Monetary amounts, payment terms, drilling obligations, 18 or personal information listed on surface use agreements, oil 19 and gas leases, or rights-of-way agreements. 20 2. Information concerning ongoing commercial negotiations 21 regarding potential or planned routing and location of 22 off-lease midstream gathering systems or infrastructure. 23 3. Confidential geological or geophysical well records 24 pertaining to exploratory wells. 25 4. Information about a proposed transfer of permits and 26 assets. 27 5. Proprietary stimulation or completion chemicals that 28 qualify as trade secrets. 29 6. Personal medical information. 30 7. Commercial information that, if disclosed, would be 31 likely to cause substantial harm to the competitive position of 32 the person providing the information. 33 Sec. 8. Section 458A.7, subsections 3 and 4, Code 2026, are 34 amended to read as follows: 35 -3- LSB 2000SW (3) 91 sb/js 3/ 24

S.F. 2490 3. An order establishing spacing units for a pool shall 1 specify the size and shape of each unit and the location and 2 number of the permitted well thereon wells in accordance with 3 a reasonably uniform spacing plan. Upon application, if the 4 director finds that a well drilled at the prescribed location 5 would not produce in paying quantities, or that surface 6 conditions would substantially add to the burden or hazard 7 of drilling such well, the director is authorized to enter 8 an order permitting the a well to be drilled at a location 9 other than that prescribed by such spacing order; however, the 10 director shall include in the order suitable provisions to 11 prevent the production from the spacing unit of more than its 12 just and equitable share of the oil and gas in the pool. 13 4. An order establishing units for a pool shall cover all 14 lands determined or believed to be underlaid by the pool, and 15 may be modified by the director from time to time to include 16 additional areas determined to be underlaid by the pool. When 17 found necessary for the prevention of waste, or to avoid the 18 drilling of unnecessary wells or to protect correlative rights, 19 an order establishing spacing units in a pool may be modified 20 by the director to increase the size of spacing units in the 21 pool or any zone of the pool, or to permit the drilling of 22 additional wells within a spacing unit on a reasonable uniform 23 plan in the pool, or any zone of the pool. Orders of the 24 director may be appealed to the department within thirty days. 25 Sec. 9. Section 458A.7, Code 2026, is amended by adding the 26 following new subsection: 27 NEW SUBSECTION . 5. If the department is unable to determine 28 the existence of a pool and the appropriate acreage to be 29 embraced within a spacing unit and the shape thereof based 30 on the evidence introduced at hearing, the department may 31 establish an exploratory spacing unit for the purpose of 32 drilling one or more exploratory wells in order to establish 33 the existence of a pool and the appropriate size and shape of 34 the spacing unit to be applied for future development of the 35 -4- LSB 2000SW (3) 91 sb/js 4/ 24

S.F. 2490 pool. In establishing the size and shape of the exploratory 1 spacing unit, the department may consider the size and shape 2 of spacing units established by the department for the same 3 pool or formation in other areas, the size and shape of units 4 for similar development in other basins, reservoir modeling or 5 other preliminary data on the pool or formation, and any other 6 information the department deems relevant. 7 Sec. 10. Section 458A.8, Code 2026, is amended to read as 8 follows: 9 458A.8 Integration of fractional tracts. 10 1. When two or more separately owned tracts are embraced 11 within a spacing unit, or when there are separately owned 12 interests in all or a part of the spacing unit, then the owners 13 and royalty owners of the tracts may pool their interests 14 for the development and operation of the spacing unit. In 15 the absence of voluntary pooling, the department, upon the 16 application of any interested person, shall enter an order 17 pooling all interests in the spacing unit for the development 18 and operations of the unit. Each pooling order shall be 19 made after notice and hearing, and shall be upon terms and 20 conditions that are just and reasonable, and that afford to 21 the owner of each tract or interest in the spacing unit the 22 opportunity to recover or receive, without unnecessary expense, 23 a just and equitable share. Operations incident to the 24 drilling of a well upon any portion of a spacing unit covered 25 by a pooling order shall be deemed for all purposes to be the 26 conduct of the operations upon each separately owned tract in 27 the drilling unit by the several owners of the unit. That 28 portion of the production allocated to each tract included in a 29 spacing unit covered by a pooling order shall, when produced, 30 be deemed for all purposes to have been produced from the tract 31 by a well drilled on it. 32 2. Each pooling order shall make provision for the drilling 33 and operation of a well on the spacing unit, and for the 34 payment of the reasonable actual cost of the well by the owners 35 -5- LSB 2000SW (3) 91 sb/js 5/ 24

S.F. 2490 of interests in the spacing unit, plus a reasonable charge for 1 supervision. In the event of any dispute as to such costs, 2 the department shall determine the proper costs. If an owner 3 shall drill and operate, or pay the expenses of drilling and 4 operating the well for the benefit of others, then, the owner 5 so drilling or operating shall, upon complying with the terms 6 of section 458A.10 , have a lien on the share of production 7 from the spacing unit accruing to the interest of each of 8 the other owners for the payment of a proportionate share of 9 the expenses. All the oil and gas subject to the lien shall 10 be marketed and sold and the proceeds applied in payment of 11 the expenses secured by the lien as provided for in section 12 458A.10 . 13 2. In the absence of voluntary pooling pursuant to 14 subsection 1, the director, upon the application by the owner 15 or owners of not less than twenty-five percent of the area of 16 the spacing unit, shall enter an order pooling all interests 17 in the spacing unit for the development and operation thereof. 18 Any such pooling order may authorize cost recovery and risk 19 penalties against nonconsenting owners for a specific well. 20 Each such pooling order shall be made after notice and hearing 21 and with terms and conditions that are just and reasonable. 22 Operations incident to the drilling of a well upon any portion 23 of a spacing unit covered by a pooling order shall be deemed 24 for all purposes to be the conduct of such operations upon 25 each separately owned tract in the unit by the several owners 26 thereof. When produced, that portion of the production 27 allocated or applicable to each tract included in a unit 28 covered by a pooling order shall be deemed for all purposes to 29 have been produced from such tract by a well drilled thereon. 30 3. Each pooling order shall provide for the drilling and 31 operation of a well in the spacing unit, and for the payment of 32 the cost thereof, as provided in this subsection. The director 33 is specifically authorized to provide that the producer shall 34 be entitled to all production from the well that would be 35 -6- LSB 2000SW (3) 91 sb/js 6/ 24

S.F. 2490 received by the owner or owners, for whose benefit the well 1 was drilled or operated, after payment of royalty as provided 2 in the lease, if any, applicable to each tract or interest or 3 after payment of the royalty if required under subsection 4, 4 and obligations payable out of production, until the producers 5 have been paid the amount due under the terms of the pooling 6 order or order settling the dispute. In the event of any 7 disputed cost, the director shall determine the proper cost. 8 The pooling order shall determine the interest of each owner 9 in the unit, and may provide that each owner who agrees with 10 the producer for the payment by the owner of the owner’s share 11 of the costs, unless the owner has agreed otherwise, shall be 12 entitled to receive, subject to royalty or similar obligations, 13 the share of the production of the well applicable to the tract 14 of the nonconsenting owner. Each owner who does not agree 15 shall be entitled to receive from the producer the owner’s 16 share of the production applicable to the owner’s interest 17 after the producer has recovered the following, subject to the 18 provisions of subsection 4: 19 a. One hundred percent of the nonconsenting owner’s share 20 of the cost of any newly acquired surface equipment beyond 21 the wellhead connections, including stock tanks, separators, 22 treaters, or pumping equipment and piping, plus one hundred 23 percent of the nonconsenting owner’s share of the cost of 24 operating the well commencing with first production and 25 continuing until the nonconsenting owner’s relinquished 26 interest reverts under other provisions in this section. 27 b. Up to two hundred percent of that portion of the costs 28 and expenses of drilling, reworking, deepening or plugging 29 back, testing, and completing, after deducting any cash 30 contributions received, and up to two hundred percent of that 31 portion of the cost of newly acquired equipment in the well, 32 up to and including the wellhead connections, which would have 33 been chargeable to the nonconsenting owner if the owner had 34 participated therein, if the nonconsenting owner’s tract or 35 -7- LSB 2000SW (3) 91 sb/js 7/ 24

S.F. 2490 interest is subject to a lease or other contract for oil and 1 gas development. 2 4. During the time the producer is recovering costs from 3 a nonconsenting owner as authorized in a pooling order issued 4 pursuant to subsection 2, a nonconsenting owner of a tract or 5 interest in a spacing unit that is not subject to a lease or 6 other contract for oil and gas development shall be entitled 7 to a cost-free royalty interest equal to twelve and one-half 8 percent. 9 5. Upon full payment of the recoverable costs as specified 10 in subsection 3, the following shall occur: 11 a. Within thirty days the producer shall notify the 12 nonconsenting owner to offer to the nonconsenting owner the 13 opportunity to participate under the pooling order as a working 14 interest owner. The notice shall state that the nonconsenting 15 owner may elect to participate in the pooling order or may 16 elect to continue receiving the royalty specified in subsection 17 4. 18 b. Within sixty days after receiving notice, the 19 nonconsenting owner shall inform the producer whether the 20 nonconsenting owner wishes to make an election to participate 21 under the pooling order as a working interest owner or continue 22 receiving the royalty specified in subsection 4. 23 c. If the nonconsenting owner fails to respond to the notice 24 within the time specified in paragraph “b” , the nonconsenting 25 owner shall be deemed to elect to continue receiving the 26 royalty specified in subsection 4. 27 d. Within five business days after receiving notice of 28 election from a nonconsenting owner or upon expiration of the 29 time specified in paragraph “b” , the producer shall notify the 30 director regarding the nonconsenting owner’s election or lack 31 thereof. 32 6. An application for pooling shall provide at least the 33 following: 34 a. A certificate of service containing all persons that 35 -8- LSB 2000SW (3) 91 sb/js 8/ 24

S.F. 2490 have a royalty interest or are owners inside the drilling and 1 spacing unit. 2 b. The applicant’s interest type in the drilling and spacing 3 unit. 4 c. The legal description of the lands and the department 5 docket number establishing the drilling and spacing unit sought 6 to be pooled. 7 d. A statement that two or more separately owned tracts or 8 separately owned interests in the drilling and spacing unit 9 have not voluntarily pooled their interests and any valid 10 pooling order for the drilling and spacing unit. 11 e. The American petroleum institute well number of the well 12 subject to the application, if requesting cost recovery or risk 13 penalties. 14 f. A list of all nonconsenting owners in the well that the 15 applicant is seeking cost recovery and risk penalties against 16 at the time of filing the application. 17 g. The cost recovery and risk penalties the applicant is 18 requesting, if any. 19 7. An applicant shall provide at hearing at least the 20 following: 21 a. A copy of the election letter, well proposal, and 22 authorization for expenditure sent to the owners in the 23 drilling and spacing unit. 24 b. The names and interests of all nonconsenting owners and 25 unleased nonconsenting owners in the well. 26 c. Evidence to justify the application of a risk penalty. 27 Sec. 11. NEW SECTION . 458A.26 Negotiation of surface 28 damages —— appraisers, report, and exceptions —— compensation 29 commission. 30 1. Before entering a site that is subject to a pooling order 31 under section 458A.8, or that is within an exploratory spacing 32 unit, with heavy equipment for the purpose of drilling, an 33 operator shall negotiate with the surface owner for the payment 34 of any damages that may be caused by the drilling operation. 35 -9- LSB 2000SW (3) 91 sb/js 9/ 24

S.F. 2490 If the parties agree and execute a written contract for payment 1 of damages, the operator may enter the site to drill. 2 2. If the parties do not agree to a contract pursuant 3 to subsection 1, or if the operator is not able to contact 4 all surface owners, the operator shall petition the district 5 court in the county in which the drilling site is located 6 for appointment of appraisers to make recommendations to the 7 parties and to the court concerning the amount of damages, 8 if any. After the operator has petitioned for appointment 9 of appraisers, the operator may enter the site to drill. 10 Unless otherwise provided, an operator shall give notice of 11 the petition at least ten days prior to the appointment of 12 appraisers, to each surface owner by personal service or by 13 delivery to the surface owner’s address of record with the tax 14 assessor. If a surface owner is not a resident of the state of 15 Iowa, there is no known heir, or a surface owner’s whereabouts 16 cannot be ascertained, the operator shall publish notice in one 17 issue of a newspaper having general circulation in the county 18 in which the drilling site is located and the ten-day notice 19 requirement shall begin on the date of publication. 20 3. The operator shall select one appraiser, the surface 21 owners shall select one appraiser, and the two selected 22 appraisers shall select a third appraiser, for appointment by 23 the district court. All appointed appraisers shall be real 24 estate appraisers certified or registered under chapter 543D. 25 The three appraisers shall be appointed within twenty days of 26 service or publication of the notice of the petition, unless 27 the court, for good cause, allows additional time. If either 28 party fails to select an appraiser or if the two appraisers 29 cannot agree on the selection of the third, the remaining 30 required appraisers shall be appointed by the district court 31 upon application of either party. Before entering upon 32 their duties, each appraiser shall take and subscribe an oath 33 that the appraiser will perform their duties faithfully and 34 impartially to the best of their ability. The appraisers shall 35 -10- LSB 2000SW (3) 91 sb/js 10/ 24

S.F. 2490 inspect the real property and the damage that is observed or 1 expected due to entry upon the land and drilling or maintenance 2 of oil or gas wells on the land. The appraisers shall file 3 a written report within thirty days after appointment with 4 the clerk of court. The report shall set forth the acreage, 5 boundaries, and value of the property entered on or to be 6 utilized for drilling, and the amount of damage done or 7 expected. The appraisers shall make a valuation and determine 8 the amount of compensation to be paid by the operator to the 9 surface owners and the manner in which the compensation shall 10 be paid. The appraisers shall then make a report of their 11 proceedings to the court. The compensation of the appraisers 12 shall be fixed by the court. The operator and the surface 13 owners shall share equally in the payment of the appraisers’ 14 fees and court costs. 15 4. a. Within ten days after the report of the appraisers 16 required under subsection 3 is filed, the clerk of the court 17 shall forward to each attorney of record, if any, and each 18 party a copy of the report and a notice stating the time limits 19 for filing an exception or a request for formation of a county 20 compensation commission pursuant to section 6B.4. The operator 21 shall provide the clerk of court with the names and last known 22 addresses of the parties to whom the notice and report shall 23 be mailed, sufficient copies of the notice and report to be 24 mailed, and preaddressed, postage-paid envelopes. The notice 25 shall be on a form prescribed by the department by rule. 26 b. If a surface owner has been served by publication, the 27 clerk shall forward a copy of the report of the appraisers 28 required under subsection 3 and the notice of time limits for 29 filing either an exception or a request for appointment of 30 a compensation commission to the last known mailing address 31 of each surface owner, if any, and shall cause a copy of 32 the notice of time limits to be published in one issue of a 33 newspaper qualified to publish legal notices in the county in 34 which the drilling site is located. 35 -11- LSB 2000SW (3) 91 sb/js 11/ 24

S.F. 2490 c. After issuing the notice required under this subsection, 1 the clerk shall make appropriate record of the notice and 2 service. 3 d. The time for filing an exception to the report or a 4 request for determination by a county compensation commission 5 shall commence upon the filing of the report of the appraisers 6 with the court. 7 5. Upon written exception filed with the court by a party 8 within thirty days after the filing of the report of the 9 appraisers required under subsection 3, the court shall review 10 the report. If the court finds any disputed issue warranting a 11 hearing, the court shall schedule such hearing with notice to 12 the parties. After the hearing, the court shall enter an order 13 confirming, rejecting, or modifying the report, or, upon a 14 showing of good cause, ordering a new appraisal. If the court 15 orders a new appraisal, the operator shall have a continuing 16 right of entry to the property subject to the posting of a bond 17 under section 458A.4 for the benefit of the surface owners. A 18 party may file an exception to appraisers’ fees and court costs 19 that shall be subject to determination by the court. 20 6. A party may, within sixty days after the filing of 21 the report of the appraisers required under subsection 3, 22 file a request for a determination of damages by the county 23 compensation commission formed pursuant to section 6B.4. Such 24 request shall be filed with the chief judge of the judicial 25 district of the county in which the land is located, and shall 26 set forth a description of the property, its location, and the 27 damages alleged, and shall attach the report of the appraisers. 28 The court and the commissioners shall proceed in the manner 29 provided by sections 6B.3 and 6B.4 for the assessment and award 30 of damages. If the damages awarded do not exceed the amount of 31 compensation recommended in the report of the appraisers, the 32 court shall assess the operator’s court costs and reasonable 33 attorney fees to the surface owners. If the damages awarded 34 exceed the compensation recommended in the report of the 35 -12- LSB 2000SW (3) 91 sb/js 12/ 24

S.F. 2490 appraisers, the operator shall be assessed the court costs and 1 reasonable attorney fees of the surface owner. 2 Sec. 12. NEW SECTION . 458A.27 Imposition of tax —— tax rate 3 —— valuation taxpayers. 4 1. For the privilege of severing or extracting oil or gas 5 from the lands within the state, there is levied a severance 6 tax on the value of the oil and gas extracted, which shall be in 7 addition to any other taxes imposed by law. 8 2. The severance tax shall be six percent of the fair market 9 value of the oil or gas upon extraction at the wellhead. 10 3. Expenses incurred by the producer prior to valuation are 11 not deductible from taxable value. 12 4. When ownership of oil or gas produced is shared, each 13 owner shall be responsible for payment of its proportionate 14 share of severance tax. A taxpayer paying severance tax on oil 15 or gas production may deduct the taxes paid from any royalty 16 or other amounts due or to become due to the interest owners of 17 such production, in proportion to the interest ownership, in 18 which case the person receiving the royalty or other payment 19 shall not be liable for severance tax. 20 5. The department of revenue may adopt rules pursuant to 21 chapter 17A to administer this section. 22 Sec. 13. NEW SECTION . 458A.28 Revenue distribution. 23 1. Revenues received from the severance tax collected 24 pursuant to section 458A.27 shall be distributed as follows: 25 a. (1) The severance tax revenues shall be distributed to 26 counties as follows: 27 (a) Nine and nine-tenths percent of severance tax revenue 28 each year shall be distributed to each county in the state in 29 proportion to the county’s share of total state population 30 according to the most recent federal decennial census. 31 (b) Five percent of severance tax revenue each year shall be 32 distributed to the counties in which land is located from which 33 oil or gas is produced in proportion to each county’s share of 34 the value of oil and gas production for that year. 35 -13- LSB 2000SW (3) 91 sb/js 13/ 24

S.F. 2490 (2) Distributions to counties under this paragraph shall be 1 used exclusively for any of the following purposes: 2 (a) To construct and maintain county roads. 3 (b) To offset county property tax collections. For 4 distributions used for purposes of this subparagraph division, 5 the county shall adopt a corresponding levy rate reduction. 6 b. Five percent of severance tax revenue each year shall be 7 deposited in the road use tax fund established under section 8 312.1. 9 c. (1) Ten percent of severance tax revenue each year 10 shall be deposited in the severance tax account within the 11 environment first fund established under section 8.57A 12 for purposes of supporting the water quality initiative 13 administered by the division pursuant to section 466B.42, 14 including salaries, support, maintenance, and miscellaneous 15 purposes, including as provided in this paragraph, 16 notwithstanding section 8.57A, subsection 3. 17 (2) (a) The moneys deposited pursuant to this paragraph 18 shall be used to support demonstration projects in 19 subwatersheds as designated by the department of agriculture 20 and land stewardship that are part of high-priority watersheds 21 identified by the water resources coordinating council. 22 (b) The moneys deposited pursuant to this paragraph shall be 23 used to support demonstration projects in watersheds generally, 24 including regional watersheds, as designated by the division, 25 and high-priority watersheds identified by the water resources 26 coordinating council. 27 (3) In supporting projects in watersheds and subwatersheds 28 as provided in subparagraph (2), all of the following apply: 29 (a) The demonstration projects must utilize water quality 30 practices as described in the Iowa nutrient reduction strategy 31 as defined in section 455B.171. 32 (b) The division shall implement demonstration projects 33 as provided in subparagraph division (a) by providing 34 for participation by persons who hold a legal interest in 35 -14- LSB 2000SW (3) 91 sb/js 14/ 24

S.F. 2490 agricultural land used in farming. To every extent practical, 1 the division shall provide for collaborative participation by 2 such persons who hold a legal interest in agricultural land 3 located within the same subwatershed. 4 (c) The division shall implement demonstration projects on 5 a cost-share basis as determined by the division. Except for 6 edge-of-field practices, the state’s share of the amount shall 7 not exceed fifty percent of the estimated cost of establishing 8 the practice as determined by the division or fifty percent 9 of the actual cost of establishing the practice, whichever is 10 less. 11 (d) The demonstration projects shall be used to educate 12 other persons about the feasibility and value of establishing 13 similar water quality practices. The division shall promote 14 field day events for purposes of allowing interested persons to 15 establish water quality practices on such persons’ agricultural 16 land. 17 (e) The division shall conduct water quality evaluations 18 within supported subwatersheds. Within a reasonable period 19 after accumulating information from such evaluations, the 20 division shall create an aggregated database of water quality 21 practices. Any information identifying a person holding a 22 legal interest in agricultural land or specific agricultural 23 land shall be a confidential record. 24 (4) The moneys deposited pursuant to this paragraph shall 25 be used to support education and outreach in a manner that 26 encourages persons who hold a legal interest in agricultural 27 land used for farming to implement water quality practices, 28 including the establishment of such practices in watersheds 29 generally, and not limited to subwatersheds or high-priority 30 watersheds. 31 (5) The moneys deposited pursuant to this paragraph may be 32 used to contract with persons to coordinate the implementation 33 of efforts provided in this paragraph. 34 (6) The moneys deposited pursuant to this paragraph may be 35 -15- LSB 2000SW (3) 91 sb/js 15/ 24

S.F. 2490 used by the department of agriculture and land stewardship to 1 support urban soil and water conservation efforts, which may 2 include but are not limited to management practices related to 3 bioretention, landscaping, the use of permeable or pervious 4 pavement, and soil quality restoration. The moneys shall be 5 allocated on a cost-share basis as provided in chapter 161A . 6 (7) Notwithstanding any other provision of law to the 7 contrary, the department of agriculture and land stewardship 8 may use moneys deposited pursuant to this paragraph to carry 9 out the provisions of this paragraph on a cost-share basis 10 in combination with other moneys available to the department 11 of agriculture and land stewardship from a state or federal 12 source. 13 (8) Not more than ten percent of the moneys deposited 14 pursuant to this paragraph may be used for costs of 15 administration and implementation of the water quality 16 initiative administered by the division. 17 d. Seventy and one-tenth percent of severance tax revenue 18 each year shall be deposited in the taxpayer relief fund 19 established under section 8.57E. 20 e. Distributions to the counties and to the funds under 21 this subsection shall be made quarterly in an amount equal 22 to one-fourth of the estimate of annual total severance tax 23 revenues estimated for the current fiscal year by the revenue 24 estimating committee. The share for producing counties shall 25 be calculated using county production data from the prior 26 fiscal year’s severance tax returns. 27 2. By September 15 of each year, the department of 28 revenue shall report actual earnings for the months of 29 the preceding fiscal year for which estimates were used in 30 computing distributions. The department of revenue shall make 31 adjustments to distributions during the current fiscal year in 32 an amount equal to the difference between revenues earned and 33 actual distributions for the preceding fiscal year. 34 3. For purposes of this section, “division” means the 35 -16- LSB 2000SW (3) 91 sb/js 16/ 24

S.F. 2490 division of soil conservation and water quality created within 1 the department of agriculture and land stewardship pursuant to 2 section 159.5. 3 Sec. 14. NEW SECTION . 458A.29 Administration 4 confidentiality. 5 1. The department of revenue shall annually value and 6 assess oil or gas production for taxation, in appropriate unit 7 measures, at the fair market value of the product, after the 8 mining is completed or the oil or gas is extracted at the 9 wellhead. 10 2. Annually, on or before June 1, or as soon thereafter 11 as the fair market value is determined under subsection 1, 12 the department of revenue shall certify the valuation of the 13 product to the county assessor of the county from which the oil 14 or gas was produced, and such valuation shall be entered upon 15 the assessment rolls of the county. 16 3. Records received, collected, or created in the 17 administration of the severance tax shall be confidential as 18 follows: 19 a. All taxpayer returns and return information shall be 20 confidential and, except as authorized below, no current or 21 former official, officer, employee, or agent of the state or 22 any political subdivision thereof shall disclose any such 23 information obtained in the course of service as an official, 24 officer, employee, or agent. Taxpayer returns and return 25 information shall include without limitation all statements, 26 reports, summaries, and all other data and documents under 27 audit or provided by the taxpayer in accordance with the 28 provisions of this chapter regarding severance tax. 29 b. Without written authorization from the taxpayer, no 30 current or former official, officer, employee, or agent of 31 the state or any political subdivision thereof shall release 32 taxpayer returns and return information pertaining to taxes 33 imposed by this chapter, except for any of the following 34 reasons: 35 -17- LSB 2000SW (3) 91 sb/js 17/ 24

S.F. 2490 (1) Information may be released to employees of the 1 department of revenue and employees of the department of 2 justice for official purposes. 3 (2) Upon prior notice to the taxpayer, information may 4 be released by the department of revenue, upon written 5 application, to any other governmental entity if the entity 6 shows sufficient reason to obtain the information for official 7 business, subject to execution of a confidentiality agreement. 8 (3) Information shall be admissible in court or 9 administrative proceedings related to the severance tax or 10 other taxes on oil or gas production or on income of producers 11 or owners, or royalties. 12 c. Units of production reported by the taxpayer and the 13 taxpayer’s taxable value are not confidential and may be 14 released. 15 4. Violations of this section shall be subject to the same 16 prohibitions and penalties that apply to other violations of 17 confidentiality requirements applicable to data and records 18 in the custody of the department of revenue for purposes of 19 carrying out its duties. 20 Sec. 15. NEW SECTION . 458A.30 Exclusive jurisdiction and 21 express preemption. 22 1. For purposes of this section: 23 a. “Commercially reasonable” means a condition that would 24 allow a reasonably prudent operator to fully, effectively, and 25 economically exploit, develop, produce, process, and transport 26 oil and gas, as determined based on the objective standard of 27 a reasonably prudent operator and not on an individualized 28 assessment of an actual operator’s capacity to act. 29 b. “Oil and gas operation” means an activity associated 30 with the exploration, development, production, processing, 31 and transportation of oil and gas, including drilling, 32 testing, geological sampling, boring, excavation, hydraulic 33 fracture stimulation, completion, maintenance, reworking, 34 recompletion, disposal, plugging and abandonment, secondary and 35 -18- LSB 2000SW (3) 91 sb/js 18/ 24